Neither the author, Tim Fries, nor this website, The Tokenist, provide financial advice. Please consult our website policy prior to making financial decisions.
It is a scary thing when you see your hopeful investment plummet in price. That sinking feeling in your stomach is natural, but it is helpful to remind yourself that Bitcoin is still an inherently volatile asset. Establish a routine to check numerous overall indicators can be very useful in such times.
Indicators to Quell Investment Anxiety
Without a doubt, many of us have witnessed the “dire news” of Bitcoin “crashing”.
Across social media, cryptocurrency naysayers were quick to gloat at their long-held prognostication. Representing this view, Peter Schiff, the famous libertarian gold enthusiast, had this to say:
“Also whales who bought #Bitcoin at much lower prices are selling it now to HODLers at much higher prices.”
Mr. Schiff is implying that institutional investors – whales – who significantly boosted Bitcoin to multiple ATHs are NOT into HODLing. Instead, their BTC investments were short term speculative bets. However, if we take a look at this graph, we see that something different is happening:
The graph signifies that investors tend to move their Bitcoin off crypto exchanges and into cold storage. This makes perfect sense if you understand that owning BTC effectively means owning your private key. Surely, this is expected from institutional investors such as the intelligence firm MicroStrategy, with its $1 billion BTC stake so far.
Moreover, this is likely to create new buying pressure. After all, lower supply yields a higher demand which results in a higher price, reflecting the economic law of supply and demand. This is on top of the record-high number of active BTC addresses reported on January 8.
Meaning that this may be an opportunity to buy Bitcoin for those who have not yet bought the dip to their satisfaction. Of course, the best time to buy BTC has passed us. Last year, at its lowest point during the stock market crash in March, at under $5k.
Unfortunately for some who missed the Bitcoin train, it seems very unlikely that Bitcoin will plummet to even under the $15k range. If it does, it should be a rapid dip-rally situation. Most importantly, when you invest in a deflationary cryptocurrency like Bitcoin, it is always prudent to revisit the Stock/Flow model to grasp the bigger picture.
As you can see, even in a “dumped” state, Bitcoin’s price is still above the projected T-line. Some believe there is nothing to quell the panic-sell urge than to revisit the S/F flow chart. HODLers have certainly benefited from it over the years.
An Even Bigger Picture
If all of those indicators are not sufficient to avoid the haunting BTC sale due to weekly fluctuations, it can be helpful to consider the overall situation. Are we in a calm economic environment? Did the lockdowns not systematically decimate the small business sector? Have we not seen unprecedented upward wealth transfer alongside the historic money supply increase by the Fed?
Most importantly, the core usage scenario of Bitcoin – adeflationary safe-haven asset – seems to be at hand. In Morgan Stanley’s Sunday Start periodical, Chetan Ahya, the bank’s global chief of economic affairs, outlines “Five Reasons Why Runaway Inflation Is Imminent”:
Excess of $1.4 trillion in savings should fuel the rebound of the economy, IF the continued narratives of “strains” and “cases” don’t incur more lockdowns.
Record unemployment numbers may not reflect the economic damage. Most job losses, 68% during February-April, happened in the low-income sectors.
The government is seeking to overdrive the economy.
Incoming Biden admin already signaled it would support the low-income sector.
With the Fed’s stated goal of 2%Y average inflation, initial surges in inflation may have more time to set in. This would make it harder to reverse.
If such projections come true, the purchasing power of the dollar would decrease in time, reflected by the rising prices. Meaning that one dollar you have today will be worth less by the end of the year. On the opposite end of that spectrum lies decentralized Bitcoin with its projected surge toward $100k.
Do you keep all of your BTC on crypto exchanges, or do you use something like Nano Ledger S to tap into trading when you need to? Let us know in the comments below.
Tim Fries is the cofounder of The Tokenist. He has a B. Sc. in Mechanical Engineering from the University of Michigan, and an MBA from the University of Chicago Booth School of Business. Tim served as a Senior Associate on the investment team at RW Baird's US Private Equity division, and is also the co-founder of Protective Technologies Capital, an investment firms specializing in sensing, protection and control solutions.